The JOBS Act became law in April 2012 with the promise it would grease the skids of small company IPOs and pave a broader avenue to the capital markets.
Two years later, a debate rages over just how wide an opening it has created.
Some maintain it has delivered as promised and transformed the IPO market, making it far easier for startups to issue public stock. The proof is in the enormous number of “emerging growth companies” that have filed confidentially with the Securities and Exchange Commission, about 500 as of March 30, according to the regulatory agency, suggesting that as many as 330 young companies remain on file waiting for the green light to go out.
Others argue the buoyant IPO market of last year and the first part of this year has little to do with legislation and everything to do with the bull run in public stocks and the quality of venture-backed companies.
Emerging growth companies, companies with less than $1 billion in annual revenue, make up about the same share of IPOs they have for the past three decades, researchers say. This is not what you would expect if the tracks were well greased.
A final answer to the dispute may not be available for some time.
The upswing in public equities has probably masked the act’s impact, or lack thereof, making a final read difficult. However, understanding of the JOBS Act remains a critical exercise for venture capitalists as they plot portfolio exit strategies for the years ahead.
If the act proves to be a powerful antidote to the lifeless IPO market of the past dozen years, then a conclusion that Sarbanes-Oxley stymied post dot-com deals is a fair one. With the JOBS Act in place, a healthier IPO market should be expected without worries of a structural change in the IPO market favoring, perhaps, larger IPOs.
On the other hand, if the decline of IPOs has more to do with market conditions or changing IPO dynamics, then VCs have a different task at hand. The economic cycle does finally seem to be reversing. But the JOBS Act, and perhaps the JOBS Act 2 measures being discussed in the House or the new Regulation A guidelines, won’t change the rules of engagement if the dynamics governing young company IPOs have altered in a post-industrialized economy.
In either case, paying attention couldn’t be more important.
The act’s supporters so far remain firmly convinced of their position.
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